Global Oil Companies Turn to Africa For “Black Gold”

High oil prices are driving growth in exploration in Africa, but global companies say their commitment depends on governments’ willingness to improve investment climates.

With the ever increasing new discoveries of hydrocarbons, for example, in Ghana, Tanzania, Mozambique and Uganda; and exploration prospects in Sierra Leone, Mali and East Africa, the oil and gas sector is expected to be a key driver of growth in Africa.

Oxford economist professor, Paul Collier, in his book titled The Plundered Planet: Why We Must – and How We Can – Manage Nature for Global Prosperity, argues that the scale of what is likely to happen on the continent is not widely appreciated, saying that future discoveries and resulting exports of resources (including oil and gas) will be around five times their current level (based on what remains unexplored in Africa versus currently known sub-soil assets). This, according to Professor Collier, will have a profoundly positive impact on Africa’s future growth and strategic positioning in the global economy.

To exploit the existing potential, the International Energy Agency (IEA) says in its most recent World Energy Outlook that almost US$2.1-trillion will need to be invested in Africa’s oil and natural gas supply infrastructure over the 2010-2035 period – an average of more than US$8-billion per year.

Oil and gas investors who are currently attending the annual Africa Oil Week in South Africa are in agreement that the sector has never looked healthier than it is now, citing high oil prices and new fields coming on stream. With limited opportunities available in other parts of the world, African oil fields are now very attractive.

Dr. Duncan Clarke, chairman of Global Pacific Partners – the organisers of the Africa Oil Week – noted the continuing influx of international oil and gas companies. He said in order to attract further investment in the sector, African governments must improve their investment climates and especially the issue of fiscal takes.

Vanguard

While sustained oil prices are benefiting companies in long-standing oil-producing countries such as Algeria, Nigeria and Angola, it is East Africa that is interesting Cove Energy executive chairperson, Michael Blaha. Blaha said the region has great prospects but is grossly underexplored. Recent discoveries and the development of oil fields in Uganda have attracted both independent oil companies, which originally opened up the region, and now even bigger companies.

‘To put this in context, some 15 000 wells have been drilled to date in West Africa and 20 000 wells have been drilled in Northern and Central Africa. 500 wells have been drilled in East Africa . . . so underexplored is an understatement,’ said Blaha in Cape Town, where East Africa is in focus at a series of conferences that comprise the Africa Oil Week.

Oil and gas discoveries have the potential to revolutionise East Africa’s energy prospects. The discoveries include the identification of gas in the Windjammer area offshore of Mozambique in 2010, followed by discoveries at Barqentine and Ironclad wells.

‘In our Mozambique block alone, we might be operating with three rigs next year. Tanzania had some interesting gas discoveries following Windjammer, and we have seen the recent exploration success of ENI in the block adjacent to ours in Mozambique. In a year from now, we might see five or even more deep water rigs operating continuously in East African waters,’ said Blaha.

It is estimated that total potential gas reserves in East Africa could amount to at least 100 tcf (trillion cubic feet).

Uganda

Discoveries and the development of oil fields in Uganda have triggered a surge of interest, with bigger oil companies such as the UK’s BG Group, Total of France and China National Offshore Oil Corporation (CNOOC) following the independents that originally opened up the region. Tullow, Total and CNOOC hold shares in the blocks that contain most of the oil reserves discovered in Uganda. The companies expect to produce at least 200 000 b/d. More wells are being drilled in order to establish the full extent of the discoveries. The 13 wells drilled in the year to the end of July discovered hydrocarbons.

Tanzania

BG Group has discovered gas with all three exploration wells that it has drilled off the south east coast of Tanzania since buying into the acreage last May. The Pweza, Chewa and Chaza wells have been drilled in deepwater in the northern part of the Ruvuma Basin and the Mafia Deep Offshore Basin held by BG and Ophir Energy. The Chinese government is providing Tanzania with a $1.06-billion loan to construct new infrastructure, which includes a new gas pipeline.

Kenya

The discoveries in Uganda and Mozambique, which have similar geological composition has attracted major international companies who are buying some of the stakes previously held by independents such as Cove Energy, Origin Oil and Pancontinental. The majors include Premier Oil, Apache Oil, and Tullow Oil, and have planned more intensive drillings over the next 12 months. Total has taken a 40% stake in five exploration blocks off the coast of Kenya and is in partnership with Anadarko and Cove energy. Exploratory drilling in the area is set for next year. CNOOC, which had been prominent in oil exploration exited in 2009. The exit marked the comeback by US and European firms looking for growth in oil exploration business.

South Sudan

In South Sudan, the government intends to take control of the oil fields lying in its territory and has let the existing companies to continue operations, but says it will review the contracts to ensure transparency. Two thirds of total oil production in Sudan lies in the new country, and is more than 300 000 b/d. The government is also looking to build an oil refinery. The development of the South Sudan refinery and the another mooted in Uganda could effectively supply the countries in the region with petroleum products thereby cutting on costs of importing fuel. This would provide forward linkages, for instance, improved roads.

Somaliland

Somaliland, which declared its independence from Somalia in 1991 but is yet to be formally recognised internationally, said it is seeking investors and has huge potential with geology similar to basins containing nine billion barrels across the Gulf of Aden.

Speaking at the Africa Oil Week, the minister of energy and mining, Hussein Abdi Dualeh, said investors should not be worried about piracy because the country has been able to contain criminals even with limited resources. Somaliland recently signed deals with Ophir Energy, Asante Oil and Prime Resources to explore, conduct seismic tests and identify wells. Abdi Dualeh said he is courting the big players who closed shop 20 years ago due to conflict in the horn of Africa.

‘We are talking about companies like Chevron, Conoco. We asked them to come back for years but they would not. Now it’s a clean slate,’ said Abdi Dualeh.

Professional services firm Ernst & Young gave a regional outlook for Africa’s oil and gas sector in a recent report titled ‘Africa oil and gas: a continent on the move’. Below is the summary.

North Africa

Political conflict in North Africa may have significant implications for the oil and gas industry, particularly in Algeria and Libya where industry revenues dominate the economies. Until recently, the sub-region had seen a general reduction in political risk and an increase in investment in the oil and gas industry, particularly on the gas side.

Until the political situation is settled, operations are likely to be constrained and/or disrupted and new investment postponed. The sub-region’s industry has remained open to the international oil companies (IOC’s), particularly the European majors, as well as to the specialised independents. Investments are usually facilitated through production sharing agreements (PSAs) with the state oil companies.

West Africa

Dominated by Nigeria and Angola, activity has taken off in the last decade, driven particularly by advances in offshore technology. Angola became a member of the Organisation of the Petroleum Exporting Countries (OPEC) in January 2007, and is one of Africa’s leading producers.

Deepwater operations are prominent in West Africa and are dominated by the super majors, typically working under joint venture (JV) arrangements or through consortia. Nevertheless, there is also growing participation of national oil companies from outside the region (e.g.

Petrobras and Sinopec) and by mid-sized and smaller independents. Local content laws are further increasing participation from smaller regional firms.

Other players include the Congo, which is still one of Africa’s largest producers, but whose oil production is in decline and potential gas development is limited by the lack of infrastructure. However, that could change if the World Bank’s proposed African Gas Initiative, which focuses on gas reserves in Angola, Cameroon, Congo, Gabon and Cote d’Ivoire, goes forward. The Congo is also thought to have some deepwater offshore potential. Central Africa’s other major player, Chad, has seen some recent success, led by ExxonMobil and China’s CNPC, but suffers from a somewhat challenging geology that makes development costly.

The sub-region also includes a number of smaller producers whose industries are generally in decline due to mature fields (Gabon and Cameroon), and some whose oil and gas industries are in ascendancy, with a few recent big successes that may bode well for the future. Notably, Equatorial Guinea hopes to leverage the Marathon-led discoveries and developments into rapid economic growth, while the Anadarko/Tullow success in Ghana’s Jubilee area will transform the country’s oil and gas industry. These successes are also thought to bode well for neighbouring developments in the West African/Atlantic Transform Margin in offshore Sierra Leone, Cote d’Ivoire and potentially Liberia.

South and East Africa

The rapid growth of the Sudan has been driven primarily by Asian state-owned investors, notably CNPC, Petronas and ONGC who quickly filled the void left when western investment dried up because of political/reputational risk and international sanctions. Sudan, one of Africa’s leading producers, is now dealing with the management of the oil and gas resources following the creation of the Republic of South Sudan.

The sub-region is also home to what could be a game-changer for the African oil and gas industry: the deepwater gas prospects off Tanzania and Mozambique. Led by Anadarko and some of the smaller regional specialists, including Tullow, Maurel & Prom, and some of the larger IOCs, recent discoveries have confirmed the Rovuma Basin as a promising gas province.

We are an organisation of people dedicated to the propagation and the dissemination of news and information relating to, and of importance to African Peoples worldwide. Our main objective is to provide an online portal where people of African decent; African heritage and friends of Africa can liaise and exchange knowledge and information.